Beggar thy neighbor?

Rising--and even accelerating--world food prices are causing serious problems to South Asia’s net food importers such as Bangladesh. To make matters worse, the country lost about 2 million metric tons of rice (7.3 percent of domestic production) in the twin floods of July-August and cyclone of November. To make up for the shortfall, Bangladesh is importing rice from its immediate neighbors. However, one of its neighbors, India, has chosen to impose either a ban on rice exports or to raise the export price above the contracted price. Every time this happens, the price of rice in Dhaka spikes (see graph). While this shows that economics works, it is troubling that a large country like India, which has a greater ability to absorb food price shocks, is imposing costs on its poorer and smaller neighbor to the east.